27 January 2020
Systematically create customer value; feed opportunities in, crank the handle, and invoices pop-out the end - a "sausage machine."
Adopting a systematised approach to business is a key enabler for growth.
In Australia we have thousands of small business solution sales organisations turning over typically less than $12 million that have reached a growth ceiling.
The upper limit isn't market based, it's a limitation imposed by the inability to manage a portfolio of projects above a certain volume.
These businesses lack adequate systems to manage beyond.
The key symptom is the need for the proprietor (who typically started the business based on technical capability) still being required to touch every project. Often, the proprietor's genius is the driving force behind the value creation and there is a limit to the volume of work that can be managed.
Identifying the key steps in creating value and developing documented systems is essential to achieve growth.
It's the difference between the proprietor asking "what work must be done?" vs the longer-term view "how must the business work?" - this concept (working on the business, not in the business) was espoused very clearly in the landmark book "The e-myth" by Michael E. Gerber.
A quick distillation of the main concept is described here The E-Myth Principle is Still Alive and Flourishing.
What is solution selling?
There are many different types of business to business organisations creating value for their clients through various means.
This article is about solution selling; organisations that respond to requests to deliver customised solutions.
- Software developers: designing and coding bespoke applications.
- Engineering firms: designing and building structures, machinery or entire processing plants.
- Architects and builders: designing and constructing buildings.
- System integrators: specifying the assembly of off-the-shelf components into a system for a particular purpose.
Solution selling firms typically provide design/development as part of their offering, hence their product is significantly customised to meet the requirement or is designed from the ground-up.
Hence, their value proposition provides innovative elements that will likely be different from others competing for the same project.
Before quoting, each competing firm must first design the technical solution on which to base their price; this cost is borne by each bidder.
For the unsuccessful bidders, this is likely to be an unrecoverable cost; very few firms requesting design and construct proposals pay the bidding costs of the unsuccessful bidders.
The sausage machine philosophy
When the number of projects being developed, cost, and delivered remains small, the experienced operator likely will cope; the problems come when managing a growing number of projects - a larger portfolio. This is when business disciplines (systems, procedures, the employing of specialists into clearly defined roles, and training) becomes necessary to avoid chaos.
Create a scalable business that can process a portfolio of projects efficiently and effectively.
The key points are...
- Transitioning from a proprietor-concentric business to a systematic business model thus removing internal growth constraints.
- Build-in a filtering process to avoid wasting resources bidding on low-win-probability projects
- Avoiding winning "vampire projects" that cost the firm both money and reputation
- Being able to manage a high volume of projects while maintaining process and control.
- A standardised process flow enables identifying and eliminating bottlenecks to improve throughput.
Having a standardised process is the cornerstone for establishing internal controls; built-in checks for assuring achieving operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies. Mostly, keeping out of trouble.
Once you have established a robust, reliable and effective 'sausage machine' you can crank it up to high volume having confidence that you are bidding on the right type of work, submitting accurate bids and delivering projects on time, on budget and impressing your customers.
Diversified capability sets are the enemy of standardisation
Every solution developer strays off the reservation. Inevitably opportunities emerge that are not, strictly speaking, within the firm's technical capability. The tendency to say "we could build that" - is how the firm puts itself in a vulnerable position.
This concept is discussed in another article "What cycling teaches you about business."
Similarly, some firms gear up to tackle a broad scope of project types across a number of technical disciplines; which stretches resources.
Diversified firms have too many "beasts to feed"; with considerable investment in plant, equipment and specialist skill sets required to tackle a variety of project types. Setting up an efficient sausage machine becomes more challenging.
The simple test of how diversified your business is to ask the question "could you lay your production processes out in a straight line, and every job would go through every process?"
Another test is to look around the workshop for expensive machines that are underutilized. Engineering firms are famous for buying a new bit of kit (particularly if a second -hand one comes-up at auction) that is only needed infrequently. Now, I am not saying this is always a bad thing - however, specialization will make more money (if there is sufficient demand and you can efficiently find customers).
Best practice is to "stick to the knitting."
Solution selling schematic
The basic idea of "working on the business" starts first with identifying the value-adding steps required to capture and deliver projects. The following diagram is the universal model. The schematic depicts the typical steps solution selling firms follow to take a potential project from enquiry to developing and delivering a final product.
I call this "The sausage machine" approach because the aim is to develop a well-oiled machine that has clearly defined rules, processes, and tools applied at each step.
The aim is to develop a deliberate process to support capacity scaling to meet the market demand, and efficiency gains achieved through process optimisation and innovation to deliver high customer value at lower enterprise cost.
Importantly, systematisation based on the described process flow enables a portfolio approach (managing multiple opportunities, not just one).
Continuously feed opportunities into the start of the process, crank the handle and invoices regularly pop out at the end, thus building a sustainable business. Hence "building a better sausage machine."
Establishing business disciplines - innate business process compared to formal
Experienced solution sales organisations will look at the above process flow schematic and say "yeah, we do all that already." - but do they really?
There's a difference between innately (developed through experience) following the process and applying the thinking versus establishing procedures and policies; occasionally, projects will skip important steps and ill-conceived, incompletely specified and risky projects will slip through.
The problem is an insidious one. Many projects may be delivered successfully despite few formal processes. But, all it takes is a few to crash and burn in a year, to wipe out profits. The symptom is the burnt-out proprietor after years of hard work, delivering hundreds of projects but never seeming to finish the year in the black.
Watching Air-crash Investigations reinforces this point. Experienced pilots could get away with hundreds of take-offs and landings relying on experience only without any problems. But, just one time they are distracted during takeoff preparations and forget to set the flaps. This is why they use checklists.
Formalising the process with documented policies and checklists enables...
- Protection against misguided enthusiasm: We've all experienced it, the sales engineer who has unearthed an amazing opportunity. In their zeal to win the project, they push the project through, risking signing up for a vampire project (one that sucks the life out of the organisation).
- Ability to manage a high volume portfolio: When the organisation is under the pump to respond to bids and deliver projects, people take shortcuts. A disciplined process enables the team to move at a high pace relying on the checks and procedures to keep them out of trouble.
- Measurement and reporting of outcomes at each stage and overall progress: Current process maps and procedures form the benchmark for regular reviews of the process (with your team). The aim is to say "how could we make this better?" However, without documentation to discuss, such meetings can become unstructured talk-fests. Reference to statistics that report such things as average time spent at each step, and non-conformance (errors and stuff-ups) will pinpoint where applied problem solving will deliver the greatest value.
- Identifying bottlenecks: The "sausage machine" is only as fast as its slowest step. As the organization grows, regularly study statistics and determine which step is (on average) the slowest. Work out why? It either needs improvement to people, process or equipment.
- Continuous improvement: No process is perfect. However, having a formalised process enables tracing back to determine where the process failed. The analysis then informs a corrective measure to improve the process. Experience is captured, and the learnings fed back into process improvement continuously building a more robust and profitable organisation.
- Optimising the equipment and techniques applied at each stage: Narrowing your focus to a smaller set of capabilities and having formal processes for delivering value enables selecting the best equipment and techniques.
- Spend high wages where they are needed: Developing and delivering solutions requires talented engineers and specialists; but, not for every process. Why pay an expensive engineer to write proposals when a skilled individual at half the salary would probably do a better job? As the organisation grows (supported by adherence to good process), the above process flow model can be used to identify bottlenecks (points in the process that slow down the entire chain) and a suitable person (the lowest cost person capable of doing the job) can be inserted into the role.
- Training people to expertly perform the tasks at each stage: As your organisation grows you will need to add more people (or replace those that leave). This is harder to do without formal position descriptions and formal procedures. In addition, while it is advantageous to capture new skills and ideas that come with new hires, you also need to maintain consistency. Before any change to a process is implemented (documented or not) it should be submitted through a 'change request process'. Employees are endlessly creative and often think they have a better way to do something (and sometimes they're right), however adopting a new practice without a formal review can either be dangerous (if the new thinking is flawed) or, if it is actually an improvement, it may be lost when they leave the organisation.
- Built-in checks and balances to manage risk: Stage gates (a checklist defining what must be completed) before a project proceeds to the next step ensures quality and controls the risk of a project running into trouble. More importantly, it ensures each step starts with completed material. Solution Selling projects are prone to time-wasting, beginning a step in the process with incomplete information or waiting for materials that interrupt building.
- Eliminating rework: In their zeal to complete a project, employees can make assumptions "I'll just weld that on there" only to find that decision is not compatible with the latest design change. Rework is hugely expensive.
- Consistent quality: Best practice has been identified and is built into the process. Once developed to a high standard the well documented and controlled "sausage machine" will consistently deliver a quality product. It becomes inevitable.
The business owner who transitions from having a role in making each sausage to working on the machine that makes the sausages is the one who builds a corporation rather than a small business.
##Solution selling process flow
Let's walk through the solution selling process flow schematic (see above) and discuss each stage...
1. Capture planning
The process starts with first identifying a project opportunity and deciding if to proceed with a bid or decline.
Capture planning is the process of deciding to BID or not, and evaluating HOW you will win (bid strategies). The extent of work put into capture planning is driven by the size of the opportunity. The capture plan for large opportunities is formally documented and form the recommendation to proceed with bidding to be signed-off at a higher level.
Read more about Capture planning here.
If the outcome from capture planning recommends proceeding with the bid, then you will already have the basis of a bid strategy worked out.
The absence of a clear strategy (i.e. "what makes us think we have a good chance of winning this project?") should be one good reason not to waste resources on bidding.
Having made the decision to proceed with the bid, having a mature process assists in making the journey smoother.
Read more about Proposal Writing
##3. Sales Closing
After the bid is submitted, then you wait. Eventually, the client will either just write to you saying they want to place an order (A WIN), but more likely they will want to negotiate and/or discuss your bid in more detail.
How this stage plays out varies considerably from one project type to the next. However, only once the bids have been submitted does the client obtain a clear picture as to the variation in prices and proposed solutions.
For the client, it can be a learning exercise in itself. Several things can happen...
- The client abandons the bid: They realise there is too much variation to achieve a true contest and/or their budget or technical expectations are not realistic
- The client re-opens the bidding, issuing a tighter specification based on the learnings applied (see "submit your bid subject to confidentiality" above).
- The client chooses to negotiate with one or two bidders to arrive at a final solution and price.
Sales Closing/Contract Negotiation
In high-value solution sales, it is rare for the customer to simply award the contract without first meeting to clarify and/or negotiate. The customer always has the option of either negotiating with one supplier only (the preferred tenderer), or several. Sometimes you don't know.
In solution selling, often this is the stage in the process where the real selling starts.
Armed with a greater understanding of their needs and the available solutions, the client may wish to revise their requirements specification. This is a great opportunity to sit down with the customer's technical team and nut out the final specification. All going well, if they like your solution and through closely working together on the final solution have developed trust and a working relationship with your team, they may simply negotiate the contract from there. Avoiding the pain of going through a new competitive bid, and having already satisfied themselves they have "tested the market" - they would be mad not to.
It's possible to predict projects that are likely to need extensive development after the bids have been submitted. This would change the nature of your original bid.
However, it is also possible for the client to try to screw a better price. Armed with your competitor's prices they will say "we would like to place the order with your company but you are 7.5% higher than than the average price." As stated earlier "this is where the real selling begins." As one boss said to me once "any idiot can give a project away, I employ a salesperson so I don't have to."
Sitting on the bid
Year's ago I worked for a large portable building manufacturer (ATCO) who specialized in the construction of workforce accommodation (typically mining camps). On very large bids (particularly overseas) they wouldn't just hand-deliver the bid, but also have the senior salesperson stay in-country until the project was either won or lost. They called this practice "sitting on the bid".
The purpose of this was to improve the chance of success by being available to answer questions. ATCO would let the client know that a senior person was sitting in a nearby hotel room; the theory being that if they needed to clarify anything or had a last-minute change in requirement, rather than communicate at a long distance, they could simply whistle-up the ATCO guy and meet face-to-face. Getting face-to-face AFTER the bid is submitted, and BEFORE the contract is awarded provides a huge competitive advantage.
Second bite at the cherry
Another contract negotiation trick is to insert into the bid reasons for the bid evaluation team to make contact AFTER the bid is submitted and BEFORE the bid is awarded. This could take many forms but usually involved providing attractive options around pricing, contract terms, technical specs, innovative design or alternative financing arrangements. The object was to obtain the chance to sit down face-to-face "rather than discussing over the phone perhaps we should sit down over the table and work through the options?"
The trick is to make sure the inserted items were not of a nature that would prevent the customer from making a decision or resulted in a non-conforming bid (in case the procurement department has a strict "no contact after the bid closes" policy).
During the discussions its often possible to get the customer to open up and reveal what was needed to kick the deal over the line "we really like your bid, but another bidder is offering X" ... "no problem, we can offer X." Ker-ching, deal done.
Terms and conditions
Don't always assume the specified terms and conditions are cast in stone. Often, the customer has simply reached into the file and pulled out their standard terms. If you have a strong bid, often they will accept a variation in terms to close the deal. Don't sign a contract for terms that might jeopardise the project viability or the potential survival of your whole business. Don't ask, don't get.
At some point, you either WIN the deal or LOSE (other possibilities is they approach two bidders and ask them to collaborate, but let's not worry about that here).
Remember you haven't WON the job until the contract is signed and the deposit has been paid. Then and only then, can you celebrate?
Many times the client has provided verbal advice only later to say they have gone with the opposition instead (usually, because they've swooped in and made a very attractive counter offer). Consider doing the same if you receive the call saying you are not successful.
Sales Closing/AS-SOLD package
Of all the sales disciplines, the AS-SOLD package is one of the most important steps. It's a key component of the rule "separate sales from delivery."
THE AS-SOLD PACKAGE is a document having a standard format and checklist that is used to create a complete file detailing...
- A tight unambiguous definition of what the customer thinks they have purchased.
- All other items needed to start work on the project, without further involvement of the sales team.
- All contractual documents signed (contract, design spec, purchase order, proof that the deposit has been paid and the funds cleared).
- Project schedule and payment milestones agreed with the customer.
- Internal sign-off by the Production Manager, Sales Manager, and (if required as defined by delegated levels of authority) sign-off by the Chief Financial Officer, Chief Executive and (for very large projects) The Board.
The AS-SOLD package becomes the bible during the project delivery phase and is the benchmark against which all deliverables are referenced particularly as a means of identifying variations.
##4. Project Set-up
The AS-SOLD package is only effective if there is a "police officer" charged with the responsibility of checking the AS-SOLD package and sending it back to sales if it does not conform.
The policing role is the responsibility of the "Contract Administrator", who also manages the financial and contractual aspects of projects during project delivery.
This person's job is to ensure that projects are tightly managed for financial control (approving any project purchases against the project budget), keeping track of direct labour against budget, that progress payment claims are invoiced and submitted, ensuring that contractual obligations are met, and for identifying variations.
The contract administrator is, however, a separate role from the Project Manager.
The contract administrator should be consulted by the pre-sales team well prior to receiving the AS-SOLD package. The sales team are advised to seek the guidance of the contract administrator (particularly for assessing proposed terms and conditions by customers) early in the process, during the capture planning and bidding stages.
Regular consultation with the contract administrator and "push-back" (rejecting dud As-SOLD packages) educates the sales team over time resulting in a more efficient sales process. The sales team develop a strong instinct for projects that are likely to "get up" and avoid chasing ghosts.
The contract administrator is a key control for ensuring the company avoids taking on vampire projects
Project Set-up/Final Design/Shop Drawings
Having been fully accepted and approved (as controlled by the contract administrator) the project can be passed through to the production team for initial planning and set-up...
The Production Manager has signed the project of which is his/her acknowledgement that the proposed schedule is achievable, the cost budget is achievable, and the project is technically feasible. The project can now be slotted into the schedule and manpower and resources can be allocated.
Project start work meeting
Generally, a project team meeting takes place to discuss the project schedule, technical requirements, and the production methodology is resolved. This is where the project "gets real" - "We have to deliver this project, what is the best way to achieve it."
The technical design team, salespeople involved, and the production team will be present. The customer may also attend this meeting and any subcontractors.
Of course, much of this thinking has already taken place, however, any unresolved elements are now identified and any opportunities to improve the project schedule or build methods are identified with the aim of "beating the bid."
Finalising solution development
During pre-sales, there are two steps where solution development is started and refined. At Initial Project feasibility (during capture planning), and Solution Development and Pricing (during bidding). The extent to which the solution is completely resolved prior to receive an order is a judgement call (as discussed above); some elements may not be completely resolved and certainly, final design specifications ready for the build will not have been completed. This work is held over until an order is received.
Detailed specifications are finalised and final technical design work is scheduled.
It is possible for previously unforeseen difficulties to be identified at this stage. Which may require further negotiation with the client. Equally, it is also possible to identify a better solution that may add to project profitability and/or result in a better solution for the customer.
Further, this stage also presents the opportunity to up-sell the project. The opportunity to add "bells and whistles" to the project may also increase profitability. The identified opportunities may be welcomed by the client and therefore should be presented to them.
Many firms routinely identify up-sell opportunities at this stage particularly if they have a strategy of "low-balling" their bids to ensure a chance to make it to the negotiation table.
Project Set-up/Planning and scheduling
A detailed project plan is drafted and how the work will be slotted into production (in amongst the portfolio of other projects being delivered) is determined. The project is now represented on the "Project Board."
Project resourcing is the final stage before the build starts. Manpower is allocated to the project and purchasing start the process of placing orders for materials.
Long lead time items will have been identified during Solution Development and Pricing. It's not unusual for orders for such items to have been placed as soon as the order has been received.
The project is ready to commence production.
Production is a whole topic in itself that is very industry-specific and therefore we can't do justice to it through a generic discussion here.
However, success in solution selling is primarily driven by...
- Bidding expertise: Bid too high and you risk losing the project; bid too low and you risk delivering low profits. Delivering a bid lower than needed to win the project is called "leaving money on the table." However, making the correct pricing decision is only possible if your bids are accurate, and this requires effective and accurate bid processes. Nothing worse than winning a project only to find that your spreadsheet had a calculation flaw or you forgot to include a significant cost.
- Project Delivery Expertise: Having won the bid, the project delivery team needs to find ways to "beat the bid" i.e. make more profit on the project than calculated in the costing. A key contributor to consistent high performance project delivery is not taking on projects that are outside of your comfort zone and/or have too high project risks that the customer refuses to own. Focus is important.
Thus the bid team leader and the project delivery team leader are two fundamentally important roles.
##6. Project closing
Of all the many things that rob project profitability, one of the biggest is not having a clearly defined finish line...
Strong customer relationships lead to scope creep: Solution Selling requires developing a strong customer relationship, which is essential for problem-solving and being invited to work on future projects. However, clients either wittingly or unwittingly exploit this relationship and tack on additional work requests. A classic example is when the installation of the solution disrupts an existing element of a customer's business or shows it up to be deficient. The work to rectify the deficiency or disruption somehow gets tacked on to the project. It's a blurred line; should you have anticipated this in advance and therefore it is part of the project delivery (at no additional charge) or is the problem preventing you from reaching the finish line and you, therefore, undertake the additional work just so you can issue your final invoice?
The customer delays final details: The project is 98% complete, you are just waiting on final decisions from the client regarding configuration settings, or some package of work they agreed they were responsible for delivering. However, they don't seem to be able to get around to completing or they have an internal problem (Fred is on leave for 2 weeks, he's the only one who can do it). Technically speaking this isn't costing you directly, but it may mean not being able to issue your final invoice or perhaps a large finished component is now taking up project space in your factory that is causing inconvenience.
The customer has thought of something else: Often, the client's needs change during the time from placing the order to delivery and they are now contemplating a variation. There is no dispute regarding paying extra - that's a given - however, before final delivery they want you to work with them on the variation and cost it. Weeks go by while they deliberate over the variation "it has to be approved at the next board meeting, but Jack won't be at the next board meeting so it will have to wait until the one after. Sorry, it is what it is." Finally, they decide not to proceed with the variation.
The answer to addressing these issues is to:
- Choose the best course of action: If you decide to absorb the cost, make sure the customer understands that you are doing so. You will want to leverage those "Brownie Points" later. However, if the client is costing you money that can't be absorbed they need to be informed in plenty of time to remedy the situation.
- Manage customer expectations: When it becomes clear the customer is creating delays, they need to be informed in a reasonable manner. Put the problem back to them.
- Document delays: In case the customer later complains about late delivery, it helps to have clear documentation about the cause of the delay and copies of the communications that advised them of the delay and the consequences.
- Treat it as a variation:
The project is complete when the finish line is reached. The build is complete, the components installed, the system commissioned, and the acceptance test has been successful. Under the terms of the contract, the project is defined as "complete" and the invoice for final payment can be issued.
Many contracts for delivered solutions include a 10% retention for a defects warranty period. There needs to be a process for recording an anniversary date for claiming the retention.
The Contracts Administrator is the person responsible for managing these processes and ensuring a clean project conclusion and follow-up of outstanding items including final payments, delivery of as-built documentation, service manuals, Bank Guarantees, and retentions.
In the spirit of continuous improvement, the final stage of the project is for the people involved with the project to meet to discuss "how did we go?: and "What did we learn."
This is an extremely valuable exercise for identifying...
- Identified flaws in the process: The sausage machine is improved when its deficiencies become apparent through use. These learnings should be documented and improvements that need to be made identified immediately or if the solutions are not easy, a statement of the problem agreed upon so that the improvement task can be tackled later.
- Further work opportunities identified: The close work with a customer that often arises during the delivery of a technical solution allows close observation of the customer's business and the identification of future work opportunities. These should be documented and fed back to the sales team.
Building a better sausage machine is an essential step toward transitioning from a proprietor-centric organisation to becoming a systems-based business positioned for growth.; along with developing a strong business focus (developing a specific reputation and expertise in a narrow field).
Of course, once you have built the machine, then you have to feed it with work.
That's called marketing.